Over the course of the past year, venture capital investments in cryptocurrency companies have experienced a sharp decline. In June 2022, the digital asset space garnered $1.81 billion in funding across 149 rounds. However, this year, the number of projects securing funding plummeted to just 83, with a total of $520 million raised. This marks the lowest funded month thus far, reflecting a staggering decrease of over 70% in VC investments in cryptocurrency companies over the past 365 days.
The decrease in funding indicates a notable shift in investor sentiment within the digital asset space. While the sector has encountered its fair share of challenges, including regulatory concerns and high-profile incidents, there are also positive indicators, such as institutional investors’ growing interest in Bitcoin.
The RootData report unveils a clear downtrend in VC interest in the digital asset space, despite occasional periods of growth. Notably, September 2022 stood out as the highest funding month, with a record-breaking $1.85 billion invested across 138 rounds. Similarly, June last year witnessed the largest number of recipients, with 149 funding rounds. However, these isolated increases do not overshadow the overall decline in venture capital investments.
Within the cryptocurrency sector, the infrastructure category emerges as the frontrunner in terms of funding. Last month, 26 infrastructure projects secured $213 million in funding. However, this figure represents a nearly 50% decrease compared to the previous month, during which 28 projects received $410 million. Notably, Gensyn AI, a UK-based startup, stole the spotlight by securing a staggering $43 million in a Series A round led by a16z crypto.
Interestingly, more than half of the institutional traders surveyed by JP Morgan, a global financial services giant, stated that artificial intelligence (AI) and machine learning would be the most influential technologies shaping the future of trading over the next three years. AI received four times more citations than blockchain and distributed ledger technology, indicating a shift in attention from the blockchain sector to AI. This trend signifies a growing recognition of AI’s ability to cater to a broader audience while the cryptocurrency industry remains self-focused.
Amid the evolving landscape of cryptocurrency investments, Tiger Global Management, a renowned VC firm, has faced losses due to investments in blue-chip cryptocurrency companies. The company’s venture fund, established in 2021 with $12.7 billion, suffered a 20% loss on paper by December 2022. Notable cryptocurrency firms, including FTX, OpenSea, and Bored Ape Yacht Club’s developer Yuga Labs, shared in these losses. The decline in value of investments, such as OpenSea, has led to shares being traded on secondary market platforms at significant discounts.
Despite the challenges and shifting sentiment, recent data indicates a rising interest among institutional investors in Bitcoin. The analysis of institutional investors’ cryptocurrency holdings, provided by on-chain analytics firm CryptoQuant, suggests a long-term investment approach. This patient approach differs from that of short-term investors who closely monitor price fluctuations. The growing interest in Bitcoin among institutional investors signifies confidence in the potential of digital assets as long-term investment opportunities.
The cryptocurrency industry has witnessed a significant decline in venture capital investments over the past year, signifying a notable shift in investor sentiment. While challenges and incidents have affected the sector, including Tiger Global’s losses and regulatory clampdowns, there are positive indications, such as institutional investors’ rising interest in Bitcoin. As the industry continues to evolve, it will be crucial to navigate these challenges and capitalize on emerging opportunities to foster sustainable growth.